You can sell and the payoff goes to the estate of the deceased seller.
Please note that I am answering this question as a service through Avvo but not as your attorney and no attorney-client relationship is established by this posting. An attorney-client relationship can only be established through signing a Fee Agreement and paying the necessary advanced fees.
When the property is sold, the title company would contact the executor of the seller's estate for a payoff amount and a reconveyance.
Only a cautionary note here--make sure the promissory note gives you a right to prepay early and without any penalty for doing so. Just a quick review will spell this out.
My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.
Based upon the scenario you have described, you could sell the home and payoff the note in accordance with its terms. The potential issue would be in obtaining the release and reconveyance from the now deceased lender's estate. If no personal representative has been appointed and there is no independent account servicer, it could delay things to get the title cleared at closing of the sale. Generally, a trustee under the deed of trust (which is the most likely security instrument at issue) could sign the release and reconveyance upon proof of payoff to the account servicer if there has been one appointed. Keep in mind that the issue of the deceased lender should probably be disclosed in any sales transaction agreement since it may hold up closing. You may want to provide for a contingency clause that would allow you to extend closing if there are problems obtaining the release. You do not want to be in breach due to a buyer not being able to close on time due to things beyond your control.